Guest post: how AI has disrupted the financial sector

There are few more exciting developments set to reshape the world of finance than artificial intelligence, and while large traditional banks are often as nimble as freighters, they are keen on pivoting to advanced tech. One need only look at industry examples from Citi, FICO, BlackRock and other major players to get an idea of the disruption, writes Nikolas Kairinos, CEO and founder of Fountech for Fintech Capital Markets.

Nikolas Kairinos, CEO and Founder, Fountech.ai

The artificial intelligence (AI) market has grown at a remarkable rate over recent decades: it was only after World War II that academics began to consider the potential of computers to solve problems. Since then, a huge investment of money and resource has been committed by companies and governments to fuel the capabilities of this technology, and today VC investment in AI tops $3 billion annually.

Some of the most significant transformations have been seen within the finance sector. While some of the large finance corporations can share the agility of a slow-turning freighter, the industry generally has a positive reputation for being quick on its feet when it comes to embracing new innovations. After all, banks like JP Morgan have been some of the earliest adopters of disruptive technologies like blockchain.

However, it’s not just massive enterprises within the financial services space that have followed tech innovations with keen interest. AI is one of the key drivers in changing the way startups, SMEs and multinationals operate on a daily basis – helping them not only boost revenue, but also save time, assess risks and provide a better customer experience.

Lowering risk

One of the most important responsibilities undertaken by lenders is to assess clients in order to determine their risk profile; and by using powerful technology, advisors can vet clients much more effectively and accurately.

Over the years, AI has therefore become an invaluable tool for risk assessment. In fact, a recent report from McKinsey shows that machine learning (ML) may reduce credit risk losses by up to 10%, with over half of risk managers expecting credit decision times to fall by as much as 50%. These represent huge improvements across an entire finance firm.

Through ML and AI, it is now much easier for financial institutions to see the relationship between consumer behaviour and their credit score. For example, AI-powered scoring models combine a client’s credit history with big data to offer much better insights into their financial behaviour than a human ever could.

A practical example of this is the FICO credit ranking system, which assesses creditworthiness by taking into account various factors like payment history, current level of indebtedness and types of credit used. Moreover, banks can continuously gather and analyze large volumes of data to improve predictions and offer more accurate insights into a person’s creditworthiness.

Reshaping customer experiences

Perhaps one of the most visible forms of AI being adopted across the financial services sector is AI-powered chatbots and advisors, which are driven primarily by consumer demand for instant communication.

According to Gartner, by 2020 chatbots will be handling no less than 85% of all customer service interactions – and just two years later, Juniper predicts that chatbots will be responsible for over $8 billion annual cost savings.

While in the early stages chatbots resembled a simple communication box located on a company’s website, now AI solutions are gradually turning these tools into fully-fledged assistants that can handle significantly more complicated demands.

Bank of America Merrill Lynch, for instance, recently rolled out a virtual financial assistant called Erica to assist customers with their everyday banking needs. Available 24 hours a day, seven days a week, this tool gives customers round-the-clock financial guidance, helping people manage their transactions while providing updates on periodic charges that are due to come through.

The benefit of such innovations is clear; as the first point of call for customers who have standard queries, Erica can effortlessly offer solutions and free up time for customer service representatives to handle more complex issues.

Making big decisions

According to PWC, more than a quarter (26%) of asset and wealth manager firms already rely on AI to inform big decisions.

This comes as no surprise, considering the speed and accuracy with which AI solutions can gather, organize and analyze information before offering valuable insights into market trends and sentiments. Companies like BlackRock and Morgan Stanley are part of the growing number of companies embracing these solutions.

BlackRock, for instance, has built a risk management platform called Aladdin, which uses natural-language processing (a function that allows computers to interpret human language) in order to scan huge numbers of documents ranging from news articles to market reports. Once it has processed all of this information, it generates a sentiment score on a particular entity to power informed decision-making.

Morgan Stanley, on the other hand, uses the 3D Insights system to generate tailored financial strategies for the individual. That’s not to say the advisors don’t have an important role to play in this process, however. Presented with investment recommendations derived from powerful predictive models, advisors are then able to decide on the best route to take based on their own expertise, experience and knowledge of the client.

Strategic partnerships

To stay at the forefront of technological innovations, many players in the financial services industry have been partnering with tech companies that can offer expert guidance when it comes to using AI to their advantage.

Most recently, Citi partnered with Feedzai – a leader in AI – to ensure clients can make payments securely and efficiently. Feedzai’s transaction monitoring platform, which is powered by ML technology, will be integrated into the bank’s proprietary services and platforms to provide enhanced control over transactions and prevent fraud.

So for companies that lack either the time, resources, or understanding to commit to a digital transformation strategy, there is clearly a great benefit to be had in turning to the tech experts for support; these often come in the form of startups.

AI poised for take-off

As firms seek out the best practices, there is no doubt that more financial service providers will continue to open their arms to emerging technologies and use them to accelerate business outcomes.

Importantly, this powerful technology allows companies to collect and analyze huge amounts of data, before using the insights to inform decisions and offer personalised support to their clients. The advantages therefore fall on both sides – the companies benefit from enhanced speed and efficiency, while the clients are offered a more tailored customer experience.

There are few more exciting developments set to reshape the world of finance than AI. And organizations must be ready to embrace the possibilities it is opening up.

Nikolas Kairinos is the CEO and founder of Fountech.ai – a company specializing in the development and delivery of intelligent AI solutions for businesses and organizations. Nikolas also has over 20 years’ experience supporting software startups around the world as an entrepreneur, investor and advisor, and has also co-founded numerous AI companies.

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